ACCOUNTING FOR TREASURY STOCK.
Abstract When treasury shares are acquired, the transaction results in the reduction of contributed capital, legal capital remains the same, and the restriction of retained earnings. If legal aspects are to be demphasized, it appears that the "direct adjustment to capital stock" is the best solution. But even though legal requirements are not ranked first in importance, they should not be forgotten. In this case, perhaps the "indirect adjustment to capital stock" is a better alternative. Accounting recognition must also include balance sheet classification as to Stockholders' equity. Differences in state laws would require a different arrangement. However, in both cases total invested capital remains the same. If a temporary restriction of retained earnings is needed, it can be shown in a footnote or as an appropriation of retained earnings. In a state which requires a permanent reduction of retained earnings, the nature of the transaction is a dividend rather than a "retirement." And so it must be recorded as a dividend. The nature of the transaction must be given first priority in recording treasury stock. Then, any legal aspects may also be satisfied in statement presentation.
- DOI
- 10.2308/tar-7100506
- Volume
- 37 (4)
- Pages
- 753-757
- Language
- en
- Export
- BibTeX
- Sources
- openalex crossref